Chinese entertaining crackdown hits Remy Martin brandy: firm

17th April 2014, 0 comments

A clampdown in China on extravagant entertaining in a drive against corruption is cutting deeply into sales of brandy, French drinks group Remy Cointreau reported on Thursday, warning of a profit slump.

The company, which owns several brands of spirits, said that group sales slumped by 13.5 percent in the 12 months to the end of March mainly because its Remy Martin brandy had lost favour in China.

The brandy brand accounts for about half of the group's business, and this is the latest sign of the effect of the campaign by Chinese authorities to bear down on extravagant entertaining and gift-giving.

Shares in the company fell by 4.07 percent to 60.41 euros in morning trading.

"Remy Martin was adversely affected throughout the financial year by the Chinese government's anti-extravagance policy, which had a negative impact on the consumption of premium spirits," the company said in a statement.

The sales fall also reflected the company's decision to reduce the level of stocks in its Chinese distribution chain.

Sales of Remy Martin brandy had fallen by 23.4 percent to 551.2 million euros ($763.7 million) in the year.

Group sales fell to 1.031 billion euros.

A number of big players in the luxury products business have reported being affected to some extent by a change in purchasing patterns in China, notably Swiss makers of expensive watches which were popular as gifts.

Remy Cointreau warned that the sales fall was likely to have a big negative effect on its underlying profits for the year to March.

The family-controlled company said it was sticking to its forecast that that current operating profit would show a significant two-digit fall, signalling that this could amount to 35-40 percent and would increase net debt.

Meanwhile sales of Remy Martin rose strongly in the United States, Russia, Japan and Africa.

Overall sales of the group's other brands also edged up.

At Bank of America Merrill Lynch, stocks analysts commented that they expected sales of cognac brandy in China to recover only modestly because the government there was stepping up its measures against ostentatious spending.

The company could counter that trend only partly with sales elsewhere.

Brokers Bryan Garnier said that Chinese policy "continues to weigh heavily on sales of cognac.